The economic week ahead: This may hurt a little

This week will bring key jobs data from the world’s largest economy, a rates decision in Europe, economic growth figures and a bond auction in Spain and manufacturing readings from around the world. With few exceptions, economists are not optimistic.

United States
America’s economic week kicks-off on Monday with March’s personal income and outlays (spending) report.
Economists surveyed by Bloomberg expect personal incomes to have risen 0.3% in March after climbing 0.2% in each of the previous two months. The monthly rate of consumer spending growth is expected to have declined, however, from 0.8% to 0.4% over the same period.

On Tuesday, markets will turn their attention to motor vehicle sales - considered to be a leading indicator of business cycle turning points by economists. Analysts surveyed by Dow Jones expect April’s total sales to tick upwards to 14.5-million units from March’s strong level of 14.4-million vehicles sold.

Also on Tuesday, the Institute for Supply Management will report last month’s manufacturing purchasing managers’ index (PMI). Economists expect this forward looking indicator of economic activity to remain in expansion territory, but to slip from a reading of 53.4 in March to one of 52.7 in April.

Another industrial gauge will follow on Wednesday before investors shift their attention to the jobs reports which will dominate the latter half of the week. Analysts expect factory orders to have slipped 1.6%, month on month, in March.

Automated Data Processing (ADP)‘s latest employment report, also scheduled for release on Wednesday, is likely to show some slippage as well. Economists surveyed by Dow Jones expect this survey of private employers to show that they added 175 000 jobs in April, down from 209 000 in the previous month.

Some good jobs news may follow on Thursday. Economists expect new filings for jobless benefits to have fallen by 10 000 last week.

Finally, this week’s data releases will culminate with Friday’s employment situation report. The consensus forecast is for a gain of 159 000 non-farm jobs in April. This would be an improvement from March’s disappointing figure of 120 000 jobs added, but remain far below the pace of hiring necessary to make a meaningful dent in the country’s elevated 8.2% unemployment rate.

On the corporate calendar, roughly a quarter of the companies comprising the Standard & Poor’s 500 stock index will report earnings this week. Big names include insurers AIG and Allstate, General Motors, Kraft Foods and media giants Time Warner and Viacom.

Europe
Spain will report gross domestic product (GDP) numbers this morning. Economists expect the release to confirm that the struggling country - the current focal point for concern over the continent’s debt crisis - is now in recession, having likely contracted 0.4% during the first quarter of 2012.

On Wednesday, a series of manufacturing PMI readings across the region are also expected to make for grim reading. Spanish and Italian surveys - already in negative territory - are expected to deteriorate further. Indices in France and Germany will likely hold steady, but remain below the 50.0 mark separating expansion from contraction, as will the euro zone as a whole.

More bad news is likely to hit midweek in the form of jobless data. Economists expect the euro zone’s unemployment rate to have edged up from 10.8% to 10.9% last month, the highest level of joblessness since 1997.

Against this dark backdrop, the European Central Bank (ECB) will gather to consider interest rates. Analysts do not expect policymakers to take action at their meeting on Thursday, but will be watching ECB president Mario Draghi closely at his post-meeting press conference. Draghi has said that Europe needs a growth compact and investors will be looking for a clarification of what he believes this should entail.

Also on Thursday, Spain will hold its first debt auction since Standard & Poor’s, a credit ratings agency, downgraded its rating by two notches to BBB+ last Thursday. The company’s outlook for the country’s long-term rating is now negative.

Throughout the week, markets will also be keeping a close eye on political developments in the run-up to Greek and French elections at the weekend. Analysts expect France’s Nicholas Sarkozy to lose his run-off against Socialist candidate Francois Hollande and Greece’s election to result in a highly fragmented coalition government.

On the corporate front, banking titans UBS and RBS will report earnings this week. Markets are likely to focus on both banks’ outlooks after Deutsche Bank disappointed markets with a downbeat assessment last week.

Asia
China’s growth outlook may be clarified on Tuesday when the China Federation of Logistics and Purchasing (CFLP) releases official PMI numbers for April. Analysts surveyed by Reuters expect to see an improvement to 53.6 from 53.1 last month.

If the survey meets expectations, it will mirror the upward movement observed in a similar private sector PMI released last week. The preliminary HSBC China PMI—based on 85% to 90% of total responses—rose to a two-month high of 49.1 in April from 48.3 in March.

Taken together, analysts believe that the two surveys may indicate that the world’s second largest economy—although still sluggish—may avert a sharp slowdown.

Elsewhere in the region, Tuesday will also see the release of trade data in India and a rates decision in Australia.

Analysts expect India’s trade data to show that the country’s exports declined by 7.1%, year on year, in March. Economists are expecting a 24.2% surge in imports, bringing the country’s monthly deficit to $13.9-billion.

This would be unsurprising—but still unwelcome—news to Indian officials. The Subcontinent’s trade deficit swelled by 56% in the fiscal year ended March, reaching a record $184.9-billion according to preliminary data released earlier this month.

To the South, economists are widely expecting policymakers at the Reserve Bank of Australia to cut interest rates by at least 25 basis points from the bank’s 4.25% cash rate at this week’s meeting.

Officials signalled earlier this month that the country’s economy had slowed and, if inflation remained in check, a case could be made for more policy easing to boost growth. Consumer price index data released last week has now confirmed that inflation is in check, clearing the way for action.

On Wednesday, India’s PMI is expected to show that, despite waning global demand, the country’s manufacturing sector remains in expansion territory. Analysts at 4CAST expect to see erosion in the index’s reading from 54.7 in March to 54.0 in April, however.

South Africa
On Monday morning, the South African Reserve Bank will issue its monthly release of selected data. Economists are likely to pay particular attention to credit and money supply figures.

Economists surveyed by I-Net Bridge expect that private sector credit extension (PSCE) expanded by 8.53%, year on year, in March from 7.92% growth in February. These same analysts forecast a rise in the country’s M3 money supply—a broad measure of money available in the economy—of 6.40% in March from 5.89% in February.

In the afternoon, SARS will release March’s preliminary trade figures. Markets expect to see a decline in the country’s trade deficit from R7.5-billion in February to R5.0-billion in March.

On Tuesday, FNB will release its housing price index for April and the Bureau for Economic Research will release April’s PMI reading. Markets expect the manufacturing gauge to slip from 55.1 in March to 53.6 in April.

On Thursday, the National Association of Automobile Manufacturers of South Africa will release April’s new vehicle sales data.

Friday will bring the release of the South African Chamber of Commerce and Industry’s business confidence index and Absa’s April housing price index.

Matt Quigley writes the weekly economic preview for the Mail & Guardian. His blog on the South African economy can be found at thoughtleader.co.za/mattquigley

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Matt Quigley

Matt Quigley writes the weekly economic preview for the Mail & Guardian.
His blog on the South African economy can be found at www.thoughtleader.co.za/mattquigley
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